2006 (2) TMI 7 - AT - Central Excise

Central Excise Cenvat credit allowable on stock as on 31.3.2003 (2) No credit on input loss (3) Limitation (4) Demand (5) Delay in filing return

Issues Involved:
1. Eligibility for Cenvat credit on inputs not physically present in stock.
2. Interpretation of Rule 9A of the Cenvat Credit Rules, 2002.
3. Timeliness of the Show Cause Notice (SCN) under Rule 12 of the Cenvat Credit Rules, 2002.
4. Imposition of penalty under Rule 13 of the Cenvat Credit Rules, 2002.
5. Plea of limitation raised by the assessee.

Detailed Analysis:

1. Eligibility for Cenvat Credit on Inputs Not Physically Present in Stock:
The appellants, manufacturers of knitted garments, claimed Cenvat credit on inputs present in semi-finished and finished goods lying in stock as of 31-3-2003. They included a 5% process loss in their credit claim, which the department disallowed, arguing that Cenvat credit was only admissible for inputs physically present in stock. The Tribunal upheld the department's view, stating, "Cenvat credit was not available to any input not contained in the materials lying in stock as on 31-3-2003."

2. Interpretation of Rule 9A of the Cenvat Credit Rules, 2002:
The appellants argued for a liberal interpretation of Rule 9A, suggesting that inputs used in the manufacture of final products, whether directly or indirectly, should be eligible for Cenvat credit. However, the Tribunal emphasized a strict interpretation of the rule, asserting, "Cenvat credit would be available to only those inputs physically present in stock, whether as such or as contained in fabric or as contained in semi-finished/finished goods."

3. Timeliness of the Show Cause Notice (SCN) under Rule 12 of the Cenvat Credit Rules, 2002:
The SCN was issued on 8-7-2004, and the appellants claimed it was time-barred. The Tribunal considered the date of filing the Cenvat return (17-7-2003) as the "relevant date" under Section 11A(3)(ii)(a)(A), making the SCN timely. The Tribunal concluded, "When reckoned from this date, the SCN dated 8-7-04 is found to have been issued within one year."

4. Imposition of Penalty under Rule 13 of the Cenvat Credit Rules, 2002:
The original authority imposed a penalty equal to the disallowed credit amount, which was later reduced by the first appellate authority. The Tribunal upheld the imposition of the penalty, stating, "The party was also liable to be penalized under Rule 13 of the Cenvat Credit Rules, 2002 on the ground of irregular availment of Cenvat credit."

5. Plea of Limitation Raised by the Assessee:
The appellants raised a plea of limitation, arguing that the SCN was issued beyond the permissible period. The Tribunal rejected this plea, noting that the relevant date for computing the limitation period was 17-7-2003, the date when the Cenvat return was filed. The Tribunal stated, "Hence the plea of limitation raised by ld. counsel is liable to be rejected."

Conclusion:
The Tribunal sustained the lower authority's decision in principle but remanded the case for re-quantification of the disallowed credit and penalty. The Tribunal instructed, "The impugned order is sustained in principle and the quanta of duty and penalty are set aside to enable the original authority to requantify the duty and penalty in terms of this order." The appellants were to be given a reasonable opportunity of being heard during this process.

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